Fitness Depot Purchased a Building on a Tract of Land

question 139

Multiple Choice

Fitness Depot purchased a building on a tract of land and allocated the entire cost of the purchase to building.Normally the company depreciates buildings over 40 years using the straight-line method with zero residual value and does not depreciate land.What is the impact of the improper accounting treatment of the purchase on the company's income for the next 20 years?

• A) overstated
• B) understated
• C) unaffected
• D) indeterminable from the information provided

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Definitions:

Gastrulation

Animal developmental process by which cell movements produce a three-layered gastrula.

Blastula

Hollow ball of cells that forms as a result of cleavage.

Zygote

Diploid cell that forms when two gametes fuse; the first cell of a new individual.

Prostaglandin

A group of physiologically active lipid compounds having diverse hormone-like effects in animals, such as regulating inflammation, blood flow, and the formation of blood clots.